UPDATE 2-Canada might need more than 3 years to recover from oil slump - BoC

Reuters Staff

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By David Ljunggren and Leah Schnurr

OTTAWA, April 20 (Reuters) - It could take Canada more than three years to recover from a shock caused by low oil prices, Bank of Canada Governor Stephen Poloz said on Wednesday, citing persistently negative factors in the economy.

A sharp fall in oil prices prompted the Bank of Canada to cut interest rates twice last year in a bid to counter lower growth and rising unemployment. Canada is a major energy exporter.

"We estimate that it's a sort of a three-year period while the negatives are still ongoing in the background and the positives are emerging in the foreground," Poloz told the Senate's banking, trade and commerce committee.

He added: "It could be longer than three years before we're settled at that new place where the energy sector will have shrunk relatively to the whole economy and the rest of the economy will have grown to fill that space."

Bank of Canada deputy governor Lynn Patterson said on March 30 that the recovery would take more than two years.

In its latest quarterly forecast, the bank said on April 13 that the economy faced downside risks, including a stronger Canadian dollar that could drag on non-commodity exports.

Poloz said Canada was still having to deal with low interest rates, weak inflation and sub-par growth.

"There is a lot still out there that's holding things back and the result of that is whenever we get some good news, there are three or four reasons why it might not be for real or might not last," he told the committee.

This economic uncertainty means many companies are reluctant to expand production, given there is a risk they could lose money if additional orders fail to materialize, he said.

"They need a longer period of proof that the economy is recovering, and it will be gradual," he added. (Reporting by David Ljunggren and Leah Schnurr; Editing by Bernard Orr and Sandra Maler)